Donald Trump’s presidency is going to end the way it began.
Trump used his inaugural address to do what no other American president has ever done before: he described America as a dystopian post-apocalyptic hellscape right out of Escape from New York. Trump takes office, vows an end to ‘American carnage’: “This American carnage stops right here and stops right now,” Trump declared in his 16-minute address.
By the time Trump leaves office on January 20, 2021, millions of Americans will have fallen ill to a novel coronavirus, with thousands, perhaps tens of thousands of Americans having died, and the economy will lie in ruins from a global recession, if not depression. The dystopian vision of America carnage that Trump fantasized onto his predecessors will in fact have become a reality under his tenure.
Annie Lowery at The Atlantic describes what we can expect to see in the next several weeks. This Is Not a Recession. It’s an Ice Age.
We can’t say we’re in a recession yet, at least not formally. A committee decides these things—no, really. The government generally adopts the view that a contraction is not a recession unless economic activity has declined over two quarters. But we’re in a recession and everyone knows it. And what we’re experiencing is so much more than that: a black swan, a financial war, a plague. Maybe things feel normal where you are. Maybe things do not feel normal. Things are not normal. For weeks or months, we won’t know how much GDP has slowed down and how many people have been forced out of work. Government statistics take a while to generate. They look backwards, the latest numbers still depicting a hot economy near full employment. To quantify the present reality, we have to rely on anecdotes from businesses, surveys of workers, shreds of private data, and a few state numbers. They show an economy not in a downturn or a contraction or a soft patch, not experiencing losses or selling off or correcting. They show evaporation, disappearance on what feels like a religious scale.
What is happening is a shock to the American economy more sudden and severe than anyone alive has ever experienced. The unemployment rate climbed to its apex of 9.9 percent 23 months after the formal start of the Great Recession. Just a few weeks into the domestic coronavirus pandemic, and just days into the imposition of emergency measures to arrest it, nearly 20 percent of workers report that they have lost hours or lost their job. One payroll and scheduling processor suggests that 22 percent of work hours have evaporated for hourly employees, with three in 10 people who would normally show up for work not going as of Tuesday. Absent a strong governmental response, the unemployment rate seems certain to reach heights not seen since the Great Depression or even the miserable late 1800s. A 20 percent rate is not impossible.
State jobless filings are growing geometrically, a signal of how the national numbers will change when we have them. Last Monday, Colorado had 400 people apply for unemployment insurance. This Tuesday: 6,800. California has seen its daily filings jump from 2,000 to 80,000. Oregon went from 800 to 18,000. In Connecticut, nearly 2 percent of the state’s workers declared that they were newly jobless on a single day. Many other states are reporting the same kinds of figures.
These numbers are subject to sharp changes; things like large plant closures lead them to jump and fall and jump and fall. But for them to rise so precipitously, across all of the states? To stay high? That is new. The economy is not tipping into a jobs crisis. It is exploding into one. Given the trajectory of state reports, it is certain that the country will set a record for new jobless claims next week, not only in raw numbers but also in the share of workers laid off. The total is expected to be in the range of 1.5 million to 2.5 million, and to climb from there.
None of that is surprising. The economy needs to halt to protect lives and sustain the medical system. Planes have been grounded, conferences canceled, millions of Americans told not to leave their homes except to get groceries and other necessities. Because of the emergency measures now in place, businesses have had no choice but to let workers go. The list of employers laying off workers en masse includes cruise lines, airlines, hotels, restaurants, bars, cabinetmakers, linen companies, newspapers, bookstores, caterers, and festivals. I started adding up numbers in news reports, and quit when I hit 100,000.
The economy had been plodding along in its late expansion, growing at a 2 or 3 percent annual pace. Now, private forecasters expect it will contract at something like a 15 percent pace, though nobody really knows. [The U.S. Economy Could Contract by 24% Next Quarter, Goldman Sachs Says.] A viral quarantine is impossible to model, because modeling would mean knowing how long the necessary emergency measures will last and how well the government will respond with some degree of accuracy. Still, real-time measures show a consumer-economy apocalypse. One credit-card processor said that payments to businesses were down 30 percent in Seattle, 26 percent in Portland, and 12 percent in San Francisco. Nearly every state is seeing dramatic declines, with hotels and restaurants hit particularly hard.
The markets are not normal, either. The stock market lost 20 percent of its value in just 21 days—the fastest and sharpest bear market on record, faster than 1929, faster than 1987, 10 times faster than 2007. The financial system has required no less than seven emergency interventions by the Federal Reserve in the past week. The country’s central bank has wrenched interest rates to zero, started buying more than half a trillion dollars of financial assets, and opened up special facilities to inject liquidity into the financial system.
Yet in the real economy, everything has halted, frozen in place. This is not a recession. It is an ice age.
Russell Berman at The Atlantic adds, The Economic Devastation Is Going to Be Worse Than You Think (excerpt):
By Friday, Goldman Sachs had revised its figures: The investment bank was now expecting a 24 percent drop in the second quarter. “Holy hell,” Heidi Shierholz, who served as chief economist for the Department of Labor during the Obama administration and is now a senior fellow at the Economic Policy Institute, said in an email flagging the update for me.
To put the data in perspective: These second-quarter forecasts would mean the deepest, fastest drop in economic activity since the government began calculating the nation’s GDP on a quarterly basis in 1947. Before now, the worst three-month plunge was 10 percent in early 1958, which happened to coincide with a flu pandemic that began the year before.
Shierholz and her colleagues have been working to translate the Goldman Sachs and J.P. Morgan projections into the statistics that people care most about—namely, jobs. A nosedive along the lines of what J.P. Morgan is predicting, she told me, would mean that 8.5 million jobs would be lost by the summer, spiking the unemployment rate from its current 3.5 percent all the way up to roughly 8.7 percent. Under the Goldman Sachs estimate, the jobs gone would total 14 million. By comparison, a rough total of about 8.7 million jobs disappeared in the Great Recession a decade ago, but those losses were spread out over years. This would occur in a single springtime.
And whatever data the government produces will likely understate the true reality of the economic hit, because the unemployment rate measures only people who are actively looking for work. Unemployed waiters might not apply for jobs when all the restaurants are closed. Neither, in all likelihood, would many hotel staff, casino workers, theater ushers, or others.
“All the economists I’ve talked to are as freaked out as they’ve ever been,” Jared Bernstein, who served as chief economist to Vice President Joe Biden in the Obama administration and informally advises his presidential campaign, told me.
Yet what is scariest about the new economic projections is that they are probably too rosy. Both Goldman Sachs and J.P. Morgan foresee big rebounds in the third quarter, over the summer, due in part to assumptions that the Federal Reserve will accelerate its moves to stabilize the financial system and Congress will soon enact another enormous fiscal-stimulus package. But the crisis might not be over by then. A federal-government plan to combat the pandemic estimated that it could last 18 months and hit in “multiple waves” that would require some degree of prolonged social distancing. Modeling by Imperial College London indicated a similar duration.
“The economy isn’t going to recover before the social distancing is over,” Shierholz said.
And even when life returns to some semblance of normalcy, the economic trauma won’t be over. According to Mark Zandi, chief economist at Moody’s, at least three big waves will hit American economy activity. The first is occurring now, as businesses close and the economy grinds to a halt. Next will be the job losses.
“The third wave will hit when people realize they are worth so much less, particularly the Boomers, who are focused on their retirement,” Zandi told me. “When they realize their nest egg has evaporated, they’ll go into panic mode and cut back on spending, and that further exacerbates the problem.”
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With warnings that the unemployment rate could hit a staggering 20 percent—by far the highest since the Great Depression—if Congress doesn’t act, Trump and his advisers have called for $1 trillion or more in stimulus spending. That’s in addition to the smaller emergency measures lawmakers have already enacted in recent weeks. On Thursday, Senate Majority Leader Mitch McConnell unveiled a Republican proposal that would send one-time payments of $1,200 to individuals earning up to $75,000 a year (those amounts double for married couples) and an extra $500 per child. The plan also contains hundreds of billions in loans for businesses and corporate tax cuts to encourage big companies like airlines and hotel chains to keep their idle workforce on salary.
Democratic leaders immediately criticized the proposal as too heavily skewed toward corporations; they are pushing for a significant expansion of unemployment benefits and other measures that would more directly help laid-off workers and low-income Americans who are most vulnerable to the economic shock.
Yet even progressive economists like Bernstein agreed that just as individuals need fast help through cash payments or other means, so do businesses.
“Basically, we have to put the economy in a deep freeze or a coma to help meet the containment requirements of the virus,” Bernstein told me. “But to strain the analogy, you want to be able to thaw from the deep freeze or for the patient to be able to wake up from the coma. That means we have to preserve not just people, which are first on my list for obvious reasons, but businesses.
“There have to be businesses to bounce back,” he said.
And as unpopular as industry bailouts are, Bernstein said the government must step in to help both corporations and mom-and-pop shops. “Do we need Delta Air Lines to be alive on the other side of this? That’s one big question,” he explained. “But then do we need Joe’s Dry Cleaner around the corner to be there on the other side? And my view is we probably need both. I would err on the side of ensuring that businesses are held whole as possible.”
How quickly the economy can recover likely depends on time—how fast, and aggressively, Congress can act, and how long social distancing lasts.
The economists I spoke with all said that this economic free-fall was sharper than the financial crisis that sparked the Great Recession, but that because the government this time essentially turned the economy off like a light, the recovery needn’t be as long or slow. “So much of this depends on the effectiveness of the policy response,” a veteran Republican economist, Douglas Holtz-Eakin, told me. “I think we still have time. The clock’s ticking, though.”
We’ll see what kind of stimulus package Congress comes up with in the next few days.